INFORMATION ON BUSINESS SEGMENTS

3 Months Ended

Mar. 26, 2017

INFORMATION ON BUSINESS SEGMENTS

NOTE 4 – INFORMATION ON BUSINESS SEGMENTS

We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space Systems. We organize our business segments based on the nature of the products and services offered.

The financial information in the following tables excludes businesses included in discontinued operations for all periods presented and includes the results of businesses we have acquired from their respective acquisition dates (see “Note 3 – Divestitures”). Net sales of our business segments exclude intersegment sales as these activities are eliminated in consolidation.

Operating profit of our business segments includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments. United Launch Alliance (ULA), which is part of our Space Systems business segment, is our primary equity method investee. Operating profit of our business segments excludes the FAS/CAS pension adjustment described below; expense for stock-based compensation; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to goodwill impairments and significant severance actions; gains or losses from divestitures; the effects of certain legal settlements; corporate costs not allocated to our business segments; and other miscellaneous corporate activities. These items are included in the reconciling item “unallocated items” between operating profit from our business segments and our consolidated operating profit. See “Note 9 – Other” (under the caption “Changes in Estimates”) for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

Our business segments’ results of operations include pension expense only as calculated under U.S. Government Cost Accounting Standards (CAS), which we refer to as CAS pension cost. We recover CAS pension cost through the pricing of our products and services on U.S. Government contracts and, therefore, the CAS pension cost is recognized in each of our business segments’ net sales and cost of sales. Since our consolidated financial statements must present pension expense calculated in accordance with the financial accounting standards (FAS) requirements under GAAP, which we refer to as FAS pension expense, the FAS/CAS pension adjustment increases or decreases the CAS pension cost recorded in our business segments’ results of operations to equal the FAS pension expense.

Summary operating results for each of our business segments were as follows (in millions):

	Quarters Ended
	March 26,     2017		March 27,     2016
Net sales
Aeronautics	$	4,106	$	3,799
Missiles and Fire Control		1,489		1,434
Rotary and Mission Systems		3,101		3,004
Space Systems		2,361		2,131
Total net sales	$	11,057	$	10,368
Operating profit
Aeronautics	$	436	$	420
Missiles and Fire Control		219		221
Rotary and Mission Systems		108		229
Space Systems		288		244
Total business segment operating profit		1,051		1,114
Unallocated items
FAS/CAS pension adjustment
FAS pension expense		(345)		(251)
Less: CAS pension cost		562		475
FAS/CAS pension adjustment		217		224
Stock-based compensation		(44)		(44)
Severance charges		—		(80)
Other, net (a) (b)		(75)		(56)
Total unallocated items		98		44
Total consolidated operating profit	$	1,149	$	1,158
Intersegment sales
Aeronautics	$	32	$	36
Missiles and Fire Control		64		75
Rotary and Mission Systems		439		447
Space Systems		26		33
Total intersegment sales	$	561	$	591

^(a) In the first quarter of 2017, we recognized a $64 million charge, which represents our portion of a noncash asset impairment charge recorded by an international equity method investee. See “Note 9 – Other” (under the caption “Equity Method Investee Impairment”) for more information.

^(b) As a result of the IS&GS divestiture in August 2016, we reclassified $35 million of general corporate overhead costs incurred in the first quarter of 2016 and previously allocated to the IS&GS business segment. These costs were not reported as discontinued operations because they were not directly attributable to the IS&GS business and will continue to be incurred by us. See “Note 3 – Divestitures” for more information.

Total assets for each of our business segments were as follows (in millions):

	March 26, 2017		December 31,   2016
Assets
Aeronautics	$	7,900	$	7,896
Missiles and Fire Control		4,322		4,000
Rotary and Mission Systems		18,435		18,367
Space Systems		5,545		5,250
Total business segment assets		36,202		35,513
Corporate assets (a)		12,634		12,293
Total assets	$	48,836	$	47,806

^(a) Corporate assets primarily include cash and cash equivalents, deferred income taxes, environmental receivables and investments held in a separate trust to fund certain of our non-qualified deferred compensation plans.

Our Aeronautics business segment includes our largest program, the F-35 Lightning II Joint Strike Fighter, an international multi-role, multi-variant, stealth fighter aircraft. Net sales for the F-35 program represented approximately 24% and 22% of our total consolidated net sales in the quarters ended March 26, 2017 and March 27, 2016, respectively.